Running a small business like a bar or restaurant is a delicate balance between prices and margins. In an attempt to offset credit card processing fees, more bars and restaurants are now offering cash discounts to their customers.
This article will explore:
- What cash discounts are
- The legality of cash discounts
- How to offer a cash discount
- Alternatives to a cash discount
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What is a cash discount?
To encourage more customers to pay using cash or check, some restaurants and bars offer a discount. The goal of these initiatives is to avoid the costs associated with credit card processing fees.
The unfortunate fact is that many food and beverage businesses are locked into merchant processing agreements with onerous fees attached to them. When restaurant and bar owners feel powerless to negotiate for better rates they feel their only choice is to pass these fees on to their customers using credit cards.
Are cash discounts legal?
There can be some legal confusion about whether it’s OK to charge customers more for using their credit cards, as opposed to cash.
Ten states have officially outlawed customer surcharges for using credit and debit cards.
These states are:
- New York
- (And Puerto Rico)
However, as part of the 2010 Dod-Frank bill, federal law specifically allows for the practice of bars and restaurants offering cash discounts to customers.
What is the difference? The answer lies in the definition of a “surcharge” and a “discount”. Compliance is based on how the final check is calculated.
Credit Surcharge — Illegal in ten states and the US territory of Puerto Rico. A surcharge is an extra fee tacked onto a customer’s bill for using a credit card to pay.
Cash Discount — A discount applied to the regular price of goods or services sold. Legal under federal law in all 50 states.
Read More: Choosing a Restaurant Business Structure
How do you start using cash discounts?
Customers need to be notified of your cash discount program. The more points of notification the less confusion is likely for customers when they pay. No one likes to be hit with surprise charges at the end of service!
At a minimum, there should be a sign on the door and at the point of sale. Servers can also notify patrons. You can also clarify on the menu that “prices shown include cash discount”.
Since a cash discount should be shown clearly on the receipt, you’ll need to program your point of sale for a discount preset which you’ll apply for cash sales. Rezku POS for bars and restaurants makes discounting easy, with unlimited presets that can be set up for multiple discount types.
Why wouldn’t you offer a cash discount?
While the practice of offering cash discounts is gaining popularity there are some good reasons not to.
First of all, customers don’t like being charged more for using their credit cards. It doesn’t matter if you call it a cash discount or a surcharge, they know what’s going on. The risk of offending or confusing your customers to save a few cents is very real.
Secondly, you can get better processing rates. Almost every restaurant and bar owner can lower their current processing rate. The team at Rezku is dedicated to getting you the absolute lowest credit card processing charges. Best of all—without long contracts.
Rezku POS works with virtually any credit card processor so that means we can find you the lowest rate based on your business. The credit card companies fight for your business, putting you in a strong negotiating position.
Why risk offending your customers by charging higher rates when they use their credit cards to pay when you can lower your credit card processing rates? It’s certainly something to consider.
Cash discounts are becoming a popular way to get around laws against charging credit card surcharges to customers. They are legal in all 50 states according to federal law.
If you choose to offer a cash discount to your customers make sure to clearly notify them ahead of their purchases. Also be sure to clearly indicate on their receipt that they’ve received a discount. This way they don’t feel they’ve been overcharged.
Consider working to lower your credit processing fees rather than charging your customers more. Contact the team at Rezku to see just how low your credit card processing costs can be.
Since 2012 Rezku has been a leading technology innovator for the hospitality industry. We provide bar and restaurant owners like you with real-world working solutions that are reliable and cost-efficient, from online reservations to point of sale, gift cards, beverage control, online delivery and much more.
We have provided advanced solutions that are easy to use to hundreds of restaurant and bar owners just like you. Find out more about Rezku on our home page. Book a free consultation with a restaurant management technology expert today.